Derivative Financial Instruments

6 Months Ended

Jul. 01, 2012

Derivative Financial Instruments (Thousands of Dollars) [Abstract]

Derivative Financial Instruments

(8) Derivative Financial Instruments

Hasbro uses foreign currency forward contracts to mitigate the impact of currency rate fluctuations on firmly committed and projected future foreign currency transactions. These over-the-counter contracts, which hedge future currency requirements related to purchases of inventory and other cross-border transactions not denominated in the functional currency of the business unit, are primarily denominated in United States and Hong Kong dollars and Euros and are entered into with a number of counterparties, all of which are major financial institutions. The Company believes that a default by a single counterparty would not have a material adverse effect on the financial condition of the Company. Hasbro does not enter into derivative financial instruments for speculative purposes.

The Company also has warrants to purchase common stock of an unrelated company that constitute and are accounted for as derivatives. For additional information related to these warrants see Note 6. In addition the Company is party to several interest rate swap agreements to effectively adjust the interest rates on a portion of the Company’s long-term debt from fixed to variable. For additional information related to these interest rate swaps see Note 4.

Cash Flow Hedges

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Hasbro uses foreign currency forward contracts to reduce the impact of currency rate fluctuations on firmly committed and projected future foreign currency transactions. All of the Company’s designated foreign currency forward contracts are considered to be cash flow hedges. These instruments hedge a portion of the Company’s currency requirements associated with anticipated inventory purchases and other cross-border transactions in 2012 and 2013.

At July 1, 2012, June 26, 2011 and December 25, 2011, the notional amounts and fair values of the Company’s foreign currency forward contracts designated as cash flow hedging instruments were as follows. For 2011, certain of its hedges have been reclassified from Other transactions to Sales transactions to reflect 2012 hedged transaction classifications.

	July 1, 2012		June 26, 2011		Dec. 25, 2011
	---------------		---------------		---------------
Hedged transaction	Notional   Amount	Fair Value	Notional   Amount	Fair Value	Notional   Amount	Fair Value
----------------------------	--------------	----------	-------------	-----------	------------	----------
Inventory purchases	$ 374,658	13,387	607,076	(22,801)	379,688	7,974
Intercompany royalty transactions	126,276	4,272	185,568	(5,650)	117,192	2,126
Sales	85,693	(2,840)	4,861	(170)	-	-
Other	18,131	19	8,907	391	29,517	(360)
	------------	----------	------------	----------	------------	----------
Total	$ 604,758	14,838	806,412	(28,230)	526,397	9,740
	=======	======	=======	======	=======	======

The Company has a master agreement with each of its counterparties that allows for the netting of outstanding forward contracts. The fair values of the Company’s foreign currency forward contracts designated as cash flow hedges are recorded in the consolidated balance sheets at July 1, 2012, June 26, 2011 and December 25, 2011 as follows:

	July 1, 2012	June 26, 2011	Dec. 25, 2011
	-------------------	-------------------	-------------------
Prepaid expenses and other current assets
-----------------------------------------------------------
Unrealized gains	$14,113	-	11,965
Unrealized losses	(4,250)	-	(4,187)
	------------	------------	------------
Net unrealized gain	9,863	-	7,778
	------------	------------	------------
Other assets
---------------------
Unrealized gains	5,066	-	2,113
Unrealized losses	(70)	-	(92)
	------------	------------	------------
Net unrealized gain	4,996	-	2,021
	------------	------------	------------
Total asset derivatives	14,859	-	9,799
	=======	=======	=======
Accrued liabilities
------------------------------
Unrealized gains	3	9,695	12
Unrealized losses	(18)	(20,801)	(50)
	------------	------------	------------
Net unrealized loss	(15)	(11,106)	(38)
	------------	------------	------------
Other liabilities
-------------------------------------
Unrealized gains	-	1,041	-
Unrealized losses	(6)	(18,165)	(21)
	------------	------------	------------
Net unrealized loss	(6)	(17,124)	(21)
	------------	------------	------------
Total liability derivatives	(21) =======	(28,230) =======	(59) =======

During the quarter and six months ended July 1, 2012, the Company reclassified gains from other comprehensive earnings to net earnings of $1,911 and $3,318, respectively. Of the amount reclassified during the quarter ended July 1, 2012, $1,675 was reclassified to cost of sales, $864 was reclassified to royalty expense and $(644) was reclassified to sales. Of the amount reclassified during the six months ended July 1, 2012, $2,941, $1,006 and $(643) were reclassified to cost of sales, royalty expense and sales, respectively. In addition, net gains of

$16 and $14 were reclassified to earnings as a result of hedge ineffectiveness for the quarter and six months ended July 1, 2012, respectively.

During the quarter and six months ended June 26, 2011, the Company reclassified net losses from other comprehensive earnings to net earnings of $(1,958) and $(112), respectively. Of the amount reclassified during the quarter ended June 26, 2011, $(1,375) was reclassified to cost of sales and $(524) was reclassified to royalty expense. Of the amount reclassified during the six months ended June 26, 2011, $(351) and $298 were reclassified to cost of sales and royalty expense, respectively. In addition, net losses of $(59) were reclassified to earnings as a result of hedge ineffectiveness in the second quarter and six months of 2011. Other income (expense) for the six months ended June 26, 2011 includes a loss of approximately $3,700 in other (income) expense related to certain derivatives which no longer qualified for hedge accounting.

Undesignated Hedges

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The Company also enters into foreign currency forward contracts to minimize the impact of changes in the fair value of intercompany loans due to foreign currency changes. Due to the short-term nature of the derivative contracts involved, the Company does not use hedge accounting for these contracts.  At July 1, 2012, June 26, 2011 and December 25, 2011, the total notional amounts of the Company’s undesignated derivative instruments were $65,109, $158,734 and $218,122, respectively.

At July 1, 2012, June 26, 2011 and December 25, 2011, the fair values of the Company’s undesignated derivative financial instruments were recorded in the consolidated balance sheets as follows:

	July 1, 2012	June 26, 2011	Dec. 25, 2011
	---------------	------------------	------------------
Prepaid expenses and other current assets
-----------------------------------------------------------
Unrealized gains	$     720	-	-
Unrealized losses	(522)	-	-
	---------	---------	---------
Net unrealized gain	198	-	-
	----------	----------	----------
Accrued liabilities --------------------------
Unrealized gains	-	1,675	41
Unrealized losses	-	(124)	(786)
	--------	--------	---------
Net unrealized gain (loss)	-	1,551	(745)
	---------	---------	----------
Other liabilities ---------------------
Unrealized gains	-	-	-
Unrealized losses	(744)	-	(1,104)
	---------	---------	----------
Net unrealized loss	(744)	-	(1,104)
	---------	---------	----------
Total unrealized gain (loss), net	$    (546)	1,551	(1,849)
	=====	=====	=====

The Company recorded net (gains) losses of $(646) and $1,468 on these instruments to other (income) expense, net for the quarter and six months ended July 1, 2012, respectively, and $(1,570) and $(3,268) on these instruments to other (income) expense, net for the quarter and six months ended June 26, 2011, respectively, relating to the change in fair value of such derivatives, substantially offsetting gains and losses from the change in fair value of intercompany loans to which the contracts relate.

For additional information related to the Company’s derivative financial instruments see Notes 4 and 6.